1. Tax Avoidance and Tax Evasion in 14 ITC countries
– some preliminary results
Emmanuel Guindon | 19 March, 2012
Effective Implementation of FCTC Policies
Pre-Conference Workshop
15th World Conference on Tobacco or Health, Singapore

2. BACKGROUND
“Sugar, rum, and tobacco, are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation.” —Adam Smith, 1776, An inquiry into the nature and causes of the wealth of nations, Book V, Chapter 3, p. 474.
“Every dollar raised by taxing harmful activities is one dollar less that we must raise by taxing useful ones. ” —Robert H. Frank, 2011, The Darwin Economy: Liberty, Competition, and the Common Good.

3. BACKGROUND
Decades of research have produced overwhelming evidence that tobacco taxes can reduce tobacco use, save lives and increase government tax revenue.
The effectiveness of taxes at reducing tobacco use provides a strong incentive for tobacco users and manufacturers to devise ways to avoid or evade tobacco taxes.
Tobacco tax avoidance and tax evasion can erode the public health and fiscal benefit of tobacco taxes.

4. Tax avoidance vs. tax evasion
BACKGROUND (CONT.)
Tax avoidance vs. tax evasion
Tax avoidance by tobacco users involves legal purchasing behaviour with objective to pay less or no taxes on tobacco products:
Examples include cross-border shopping, tourist shopping, duty free shopping and internet purchases.
Tax evasion involves illegal methods of avoiding tobacco taxes. Such illegal activities include illicit trade or production of genuine or counterfeit tobacco products.

5. Tobacco tax avoidance and evasion pose an array of challenges
BACKGROUND (CONT.)
Tobacco tax avoidance and evasion pose an array of challenges
Relatively inexpensive, licit or illicit, tobacco products undermine public policies that seek to render tobacco products less affordable.
Tax evaded cigarettes may be sold in packaging which do not provide the information which is required by regulations, such as health warnings and information on toxic emissions.
Tobacco tax avoidance and evasion also decrease government revenue available for health and social programs, can result in increased criminal justice expenditures, and can provide unmonitored access to cigarettes by youth.

6. Longitudinal cohort design: same respondents are tracked over time
DATA – THE ITC SURVEYS
An international system for evaluating the impact of FCTC tobacco control policies
Extensive surveys of probability samples of adult smokers in each country
Longitudinal cohort design: same respondents are tracked over time
Identical/similar methods/measures in all countries
Selecting countries to evaluate policy via “natural experiments”

8. Quantifying the magnitude of the tobacco tax avoidance/evasion
METHODS
Quantifying the magnitude of the tobacco tax avoidance/evasion
Data from ITC surveys can be used to estimate the extent and the type of tax avoidance/evasion between countries and across time.
In many countries, information about the source of a smoker’s last or usual purchase of cigarettes can provide key tax avoidance/evasion information.
Out of state/province/country; Indian reservations; duty free; etc.
Self-reported packaging information, or similar information gathered by the interviewers during face-to-face interviews can also provide key insights into tax avoidance/evasion behaviours.
Non-standard or missing health warnings, tax stamps or authenticity labels.

9. Source of last purchase of cigarettes
METHODS: TAX AVOIDANCE AND TAX EVASION
Source of last purchase of cigarettes
Tax avoidance/evasion:
Indian reservation
Duty free
Out of state/province/country
Military commissary
Toll-free number (mail/phone)
Internet
Independent seller
Any direct purchase:
Mail, phone or Internet

10. TAX AVOIDANCE AND TAX EVASION – Canada, United States
Percentage of respondents reporting the source of their last purchase of cigarettes
4 country survey
Wave 1 (Nov 02 - Dec 02)
Wave 2 (May 03 - Sep 03)
Wave 3 (Jun 04 - Dec 04)
Wave 4 (Oct 05 - Jan 06)
Wave 5 (Oct 06 - Feb 07)
Wave 6 (Sep 07 - Feb 08)
Wave 7 (Oct 08 - Jul 09)
Wave 8 (Jul 10 - Jun 11)
Mean
Canada
Indian reservation
0.020
0.026
0.038
0.063
0.080
0.103
0.104
0.095
Out of state/province/country
0.003
0.005
0.001
0.000
0.004
Duty free
0.006
0.007
Any direct purchase (mail, phone or Internet) -
0.002
Independent seller/friends/relatives
0.017
0.012
0.014
0.018
0.008
Military
Refused/don't know/other
Total: any tax avoidance/evasion
0.033
0.046
0.062
0.083
0.100
0.131
0.132
0.118
United States
0.030
0.044
0.009
0.013
0.019
0.010
0.011
0.054
0.064
0.071
0.058
0.057
0.053
0.076
0.073

11. TAX AVOIDANCE AND TAX EVASION – United Kingdom, Australia
Percentage of respondents reporting the source of their last purchase of cigarettes
4 country survey
Wave 1 (Nov 02 - Dec 02)
Wave 2 (May 03 - Sep 03)
Wave 3 (Jun 04 - Dec 04)
Wave 4 (Oct 05 - Jan 06)
Wave 5 (Oct 06 - Feb 07)
Wave 6 (Sep 07 - Feb 08)
Wave 7 (Oct 08 - Jul 09)
Wave 8 (Jul 10 - Jun 11)
Mean
United Kingdom
Out of state/province/country
0.088
0.104
0.107
0.080
0.092
0.051
0.054
Duty free
0.044
0.055
0.070
0.068
0.034
0.058
Any direct purchase (mail, phone or Internet)
0.000
0.001
0.019
0.003 -
Independent seller/friends/relatives
0.025
0.032
0.033
0.037
0.035
0.059
Military
Refused/don't know/other
0.002
Total: any tax avoidance/evasion
0.158
0.193
0.184
0.180
0.171
0.159
0.179
0.162
Australia
0.005
0.007
0.006
0.012
0.009
0.014
0.015
0.004
0.011
0.013
0.016
0.022
0.027

12. TAX AVOIDANCE AND TAX EVASION
– Canada, United States, United Kingdom, Australia
Percentage of total cigarette consumption that is tax avoided/evaded
4 country survey
Wave 1 (Nov 02 - Dec 02)
Wave 2 (May 03 - Sep 03)
Wave 3 (Jun 04 - Dec 04)
Wave 4 (Oct 05 - Jan 06)
Wave 5 (Oct 06 - Feb 07)
Wave 6 (Sep 07 - Feb 08)
Wave 7 (Oct 08 - Jul 09)
Wave 8 (Jul 10 - Jun 11)
Mean
Canada
0.036
0.054
0.070
0.115
0.131
0.189
0.211
0.199
United States
0.075
0.101
0.108
0.076
0.082
0.079
0.120
0.105
United Kingdom
0.205
0.261
0.243
0.234
0.242
0.246
0.237
0.224
Australia
0.009
0.014
0.017
0.011
0.018

13. TAX AVOIDANCE AND TAX EVASION – France
Percentage of respondents reporting the source of their last purchase of cigarettes
France
Wave 1 (Dec 06 - Jan 07)
Wave 2 (Sep 08 - Nov 08)
Mean
Out of country (inside EU)
0.128
0.167
Out of country (outside EU)
0.010
0.016
Duty free
0.015
Any direct purchase (mail, phone or Internet) -
0.001
Independent seller/friends/relatives
0.005
0.007
Refused/don't know/other
Total: any tax avoidance/evasion
0.158
0.206

14. TAX AVOIDANCE AND TAX EVASION – Ireland and Scotland
Percentage of respondents reporting the source of their last purchase of cigarettes
Ireland/Scotland
Wave 1 (Dec 03 - Jan 04)
Wave 2 (Dec 04 - Jan 05)
Wave 3 (Feb 06 - Mar 06)
Mean
Ireland
Out of country
0.008
0.013
0.028
Duty free
0.017
0.032
0.018
Any direct purchase (mail, phone or Internet)
0.002
0.000
0.005
Independent seller/friends/relatives
0.004
0.003
0.010
Refused/don't know/other
0.001
Total: any tax avoidance/evasion
0.033
0.049
0.063
Scotland
n.a.
0.037
0.022
0.072

15. TAX AVOIDANCE AND TAX EVASION – Netherlands
Percentage of respondents reporting the source of their last purchase of cigarettes
Netherlands
Wave 1 (Mar 08 - Apr 08)
Wave 2 (Nov 08 - Dec 08)
Wave 3 (Mar 09 - May 09)
Wave 4 (May 10 - Jun 10)
Wave 5 (May 11 - Jun 11)
Mean
Out of country (inside EU)
0.014
n.a.
0.027
0.029
Out of country (outside EU)
0.001
0.005
0.009
Duty free
0.007
0.003
0.008
Any direct purchase (mail, phone or Internet)
0.000 -
Independent seller/friends/relatives
0.004
0.006
Refused/don't know/other*
0.013
0.024
0.036
Total: any tax avoidance/evasion
0.040
0.064
0.087
* Unlike other ITC surveys, the Netherland surveys do not contain a follow up question for individuals who responded "other" as the source of their last purchase of cigarettes.

16. TAX AVOIDANCE AND TAX EVASION – Malaysia, Thailand
Warning labels, tax stamps, authenticity labels
Malaysia/Thailand
Wave 1 (Jan 05 - Mar 05)
Wave 2 (Aug 06 - Jun 07)
Wave 3 (Jan 08 - Aug 08)
Wave 4 (Apr 09 - Nov 09)
Mean
Malaysia
Warning labels:
- non standard warning labels
0.034
0.049
0.056
n.a.
- no warning labels
0.073
0.029
Tax stamps:
- no tax stamps or security ink
0.091
0.115
0.321
- duty free stamp (pink)
0.069
- refused
0.003
0.001
Thailand -
0.004
0.010

17. TAX AVOIDANCE AND TAX EVASION – Bangladesh, China, Mauritius, Uruguay
Warning labels, tax stamps, authenticity labels
Bangladesh
Wave 1 (Feb 09 - May 09)
Wave 2 (Mar 10 - Jun 10)
Mean
Tax stamps:
- no tax stamps
0.004
0.037
Note: Based on a small sample of respondents who provided an empty pack to interviewers
China
Wave 1 (Mar 06 - Dec 06)
Wave 2 (Oct 07 - Feb 08)
Wave 3 (May 09 - Mar 10)
Authenticity labels
- no authenticity labels/refused
0.113
0.130
0.071
Mauritius
Wave 1 (Apr 09 - May 09)
Wave 2 (Aug 10 - Oct 10)
Wave 3 (Jun 11 - Jul 11)
0.147
0.085
0.026
- don't know
0.072
0.064
0.063
Uruguay
Wave 1 (Oct 06 - Dec 06)
Wave 2 (Oct 08 - Feb 09)
Wave 3 (Oct 10 - Jan 11)
Warning labels:
- non standard warning labels
0.048
0.093
- no warning labels
0.022
0.030
0.074

18. TAX AVOIDANCE AND TAX EVASION – PRICES
– Canada, United States, United Kingdom
Prices, pack of 20 (local currency units)
Wave 1 (Nov 02 - Dec 02)
Wave 2 (May 03 - Sep 03)
Wave 3 (Jun 04 - Dec 04)
Wave 4 (Oct 05 - Jan 06)
Wave 5 (Oct 06 - Feb 07)
Wave 6 (Sep 07 - Feb 08)
Wave 7 (Oct 08 - Jul 09)
Wave 8 (Jul 10 - Jun 11)
Mean
Canada
Indian reservation -ITC
4.92
4.23
4.58
4.02
3.67
3.42
3.52
4.01
Any tax avoidance/evasion -ITC
5.08
4.60
5.11
4.28
3.82
3.68
3.84
4.40
No tax avoidance/evasion -ITC
6.25
6.55
6.70
6.82
6.97
7.15
7.29
7.55
All -ITC
6.22
6.47
6.64
6.71
6.78
6.88
7.07
CPI -Statistics Canada
5.90
6.90
7.17
7.43
7.67
8.22
United States
2.32
2.19
2.72
2.50
2.86
2.68
2.82
3.48
2.29
2.26
2.47
2.49
2.85
2.95
2.93
3.71
3.38
3.26
3.30
3.60
4.21
5.04
3.33
3.20
3.25
3.47
3.56
3.78
4.11
4.95
United Kingdom
2.10
2.20
2.42
2.43
2.40
2.52
2.48
3.21
4.15
4.32
4.49
4.71
4.87
5.07
5.44
3.90
4.09
4.27
4.50
4.59
4.82
5.24

19. GIS – CANADA
A closer look at the provinces of Ontario and Québec

20. GIS – CANADA
A closer look at the provinces of Ontario and Québec

21. GIS – CANADA
A closer look at the provinces of Ontario and Québec

22. GIS – CANADA
A closer look at the provinces of Ontario and Québec

23. GIS – CANADA
A closer look at the provinces of Ontario and Québec

24. GIS – CANADA
A closer look at the provinces of Ontario and Québec

25. GIS – CANADA
A closer look at the provinces of Ontario and Québec

26. GIS – CANADA
A closer look at the provinces of Ontario and Québec

27. Co-authors ACKNOWLEDGEMENTS
Frank Chaloupka, University of Illinois at Chicago
Pete Driezen, University of Waterloo
Geoffrey Fong, University of Waterloo

28. 28